Salvaging (Classical) Liberalism

Look…I know I have done more than my share of bashing liberalism, primarily along the lines of the idea that it views religion – specifically Christianity – as irrelevant to liberty or even an enemy of liberty.  We see today the inevitable end result of such thinking.  Liberty without God leads to hell – the hell of all of the isms of the last century and the abolition of man in this century.

The problem is most defenders of classical liberalism do such a rotten job of defending it.  Various forms of… “we just didn’t try hard enough”, or “look at the material progress,” or “modern dentistry.”  None of these get the classical liberal juices flowing again.  To say nothing of those who say that we haven’t done enough to get rid of religion yet.  Who are they kidding?

I will help them out.  Actually, Ludwig von Mises will help them out.  Do you want to salvage classical liberalism, and attempt to do so without God and without Christianity as it developed in the West?  Try this:

It has already been pointed out that a country can enjoy domestic peace only when a democratic constitution provides the guarantee that the adjustment of the government to the will of the citizens can take place without friction.

Now, don’t get all tangled up in your shorts about this “will of the citizens” stuff.  Give Mises a chance to develop his point.

[The liberals of an earlier age] believed…that to assure lasting peace it was sufficient to replace the rule of dynastic princes by governments dependent on the people.

Not enough.  It has only grown worse, and Hans Hoppe has ably explained why.

It must always be possible to shift the boundaries of the state if the will of the inhabitants of an area to attach themselves to a state other than the one to which they presently belong has made itself clearly known.

Malleable boundaries.  It isn’t the lines on the map that are important; it is the desire of those who live within any of these boundaries that matters:

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with.

In this you will see why many classical liberals and many libertarians don’t like this idea.  They see liberalism as the highest political form devised.  They see their project as a universalizing one.  So, why allow any group of people to escape?  Those who wish to escape don’t know what’s good for them – they are, after all, deplorable.

Mises will get even more granular:

If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.

He sees the stumbling block a technical one.  Precisely why is not clearly explained (or I may just not understand the explanation).  But I think it is something more than, or other than, technical.  People want to live in community with like-minded people.  I suspect very few people would choose a political unit comprised solely of themselves.

This is the only feasible and effective way of preventing revolutions and civil and international wars.

Crimea, the Donbass, Taiwan, Nagorno Karabagh, the State of Jefferson.  Problems peacefully solved if such rights were respected.

I haven’t heard Jordan Peterson offer this solution.  I haven’t heard Steven Pinker offer this solution.  As for Sam Harris?

“At that point Hunter Biden literally could have had the corpses of children in his basement, I would not have cared.”

Better murdered children than consider to allow a plebiscite, dissolution, and reorganization.  Based on the actions of today’s liberals, Harris does not stand alone.

Conclusion

The solution offered by Mises may not be perfect, but it is infinitely better than the current state of affairs.  It is also infinitely better than any of the impotent and even immoral pleadings of today’s classical liberal apologists.

And it is the only way to salvage the liberal experiment.

Now it’s the “Austerians”

Isn’t this getting a bit ridiculous?  First it was the “Austro-nihilists,” then it was “Austro-outrageous,” both from Ambrose.  Now, Jeremy Warner has written a column, also at the Telegraph, entitled “Have the austerians won the day, or will the pragmatists prevail?”

Are they mocking us, or is all the attention a sign of respect?

In Warner’s commentary there is so much garbage, junk, distortion, muddled thinking, and efforts of defining the acceptable boundaries of the dialogue…I don’t know where to start, and I won’t know where to stop…but here goes.

He starts right away in the first sentence:

“Ideology is never a good basis for public policy…”

To the extent that there must be this thing called “public policy,” isn’t ideology critical?  Just today, at LRC, is a commentary by Glenn Jacobs exactly on this point, entitled “Compromising Our Liberty.”  Understanding how politicians will act based on a clearly defined ideology is critical if government by law is to be achieved, as opposed to government by man.

We can argue about what’s appropriate, but when economies become destabilised, state intervention is not just warranted, it’s absolutely necessary.

Where is the wonder about the source of the destabilization?  Is it an act of God?  Is it likely or plausible that all bankers and all businessmen suddenly make the same mistakes at the same time?  Why is there never a serious conversation about eliminating the source of this mass insanity?

And why is state intervention necessary?  In our most recent episode, after six years of non-recovery – induced by state-intervention in response to state-caused destabilization – is it not, by now, safe to assume that recovery would have been achieved much sooner had the state done nothing – or, if intervention is desired, by lowering spending and taxes?

Unfortunately, this remains an issue with which many on the Right still have something of a problem, as the debate now raging in the US about who should replace Ben Bernanke as chairman of the Federal Reserve demonstrates.

What “raging” debate about Bernanke’s replacement?  The choice is inflation option A vs. inflation option B.  There is no “right” vs. “left” debate regarding Bernanke’s replacement.  Anyone who understands free markets knows the debate is nothing but show.

Almost nobody on the political “right” views the issue of Fed Chairman as some sort of a “problem.” The political “right,” like the political “left,” is satisfied as long as there is the chair.  The real issue is not the person occupying the seat; the issue is that there is even a chair.  The chair represents central planning, and central planning of the single-most important commodity in a division-of-labor economy: money, and with it the associated credit.

Milton Friedman: Free Market Champion?

I know this is a somewhat tired and worn subject.  Friedman, while very good on many free-market subjects, was terribly wrong on some of the most important: central banking, government involvement in education, and his role in payroll tax withholding.  So for me to jump in on this with a post on this topic is kind of like shooting fish in a barrel.

I have wanted to address some of the specific issues I have with Friedman’s views for some time – call it my desire to place a marker in order to measure my own progress, I guess.  So in this post, I will comment on his views of monetary policy and central banking.  Like I said, I don’t think there is anything terribly earth shattering here, this is more for personal reasons.

Capitalism and Freedom, by Milton Friedman

Chapter 3: The Control of Money

Milton Friedman is held by many to be the champion of free market capitalism.  It is a wrong view; it is a view established by the gatekeepers to ensure one boundary of acceptable dialogue when it comes to economic and monetary possibilities.  Friedman is presented as the free-market goal post – any thoughts beyond those of Friedman’s are out of bounds.

The Great Depression in the United States, far from being a sign of the inherent instability of the private enterprise system, is a testament to how much harm can be done by mistakes on the part of a few men when they wield vast power over the monetary system of a country.

Mistakes…cannot be avoided in a system which disperses responsibility yet gives a few men great power, and which thereby makes important policy actions highly dependent on accidents of personality.

It shouldn’t surprise any regular visitors of this site that I share precisely the same view on these matters as does Friedman – at least as far as this excerpt goes.  Using these views as the basis, I will explore Friedman’s free-market credentials, as well as consistency in his logic regarding his recommendations toward resolving this problem.

Friedman outlines his view of the range of opinions regarding monetary schemes.  He portrays himself as charting a course through two unacceptable extremes, a Hegelian dialectic, if you will:

The Scylla is the belief that a purely automatic gold standard is both feasible and desirable and would resolve all the problems of fostering economic cooperation among individuals and nations in a stable environment.  The Charybdis is the belief that the need to adapt to unforeseen circumstances requires the assignment of wide discretionary powers to a group of technicians, gathered together in an “independent” central bank, or in some bureaucratic body. 

With this, Friedman sets the stage of possibilities.  He paints the picture of two extremes, presumably with the truth to be found somewhere in between these. 

Yet there is a possibility that lies outside of the range Friedman has defined.  I suggest it is outside of the range Friedman offers because it is the free market approach; the extremes of Friedman’s range (and presumably every point in between) would require government force over voluntary contracts.

The School That Shall Not Be Named

(h/t to Mr. Rozeff)

Howard Davies has written a piece entitled “Economics in Denial.”  Of course, as a field of study cannot be in “denial,” it would seem to be safe to say that it is the economists themselves in denial, as Mr. Davies himself seems to be.  Who is this Mr. Davies?

Howard Davies was Director of the London School of Economics (2003-11), and was the first chairman of the United Kingdom’s principal financial regulatory body, the Financial Services Authority (1997-2003), which he established at the request of the British government. Previously, he served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.

In case you are later confused about the blindness in his commentary, please refer back to this biography.  It should clear things right up for you.

In an exasperated outburst, just before he left the presidency of the European Central Bank, Jean-Claude Trichet complained that, “as a policymaker during the crisis, I found the available [economic and financial] models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools.”

It was a remarkable cry for help, and a serious indictment of the economics profession, not to mention all those extravagantly rewarded finance professors in business schools from Harvard to Hyderabad

This is a very good place to start – recognition by one of the key insiders that everything he and his thousands of studied colleagues thought they knew…well, they didn’t know.  Rarely does such a candid admission come from someone seated on such a high pedestal.

Trichet asked for help from unconventional corners of academia and science; he apparently found only a few volunteers:

Robert May, an eminent climate change expert, has argued that techniques from his discipline may help explain financial-market developments.

This is interesting.  Advice is coming from the debunked “school” of climate change.  Perhaps this is welcome, as this school is expert at manipulating data until the numbers portray the desired story.  Sounds just like typical macro-economics.

Epidemiologists have suggested that the study of how infectious diseases are propagated may illuminate the unusual patterns of financial contagion that we have seen in the last five years.

Germs – the economy is like germs.  Festering, boiling over, only controlled apparently by experts in white robes prescribing large doses of medication and intervention.  Yes, just like typical macro-economics.

What a hoot!

These are fertile fields for future study, but what of the core disciplines of economics and finance themselves?

At least now he is getting warm. 

Can nothing be done to make them more useful in explaining the world as it is, rather than as it is assumed to be in their stylized models?

Mocking the models.  Boy he is really getting warmer.  Pretty soon he will be burning up.  Open your eyes, Mr. Davies.  The answer is out there in the open, right in front of your face!

He moves on to review recommendations that came as a result of a conference funded by the Bank of England (Mr. Davies, you are getting colder):

...there should be more teaching of economic history. We all have good reason to be grateful that US Federal Reserve Chairman Ben Bernanke is an expert on the Great Depression….

Wait, you are getting colder.

Many conference participants agreed that the study of economics should be set in a broader political context, with greater emphasis on the role of institutions.

You are really freezing.

Students should also be taught some humility. The models to which they are still exposed have some explanatory value, but within constrained parameters. And painful experience tells us that economic agents may not behave as the models suppose they will.

Now you are getting warm again.  Hot actually.  You are almost on fire.

But it is not clear that a majority of the profession yet accepts even these modest proposals. The so-called “Chicago School” has mounted a robust defense of its rational expectations-based approach, rejecting the notion that a rethink is required.

The arrogance is like a stench.  Nothing from this most famous school of monetary cranks ever came close to suggesting that the calamity seen in 2008 was possible.  Nothing to see here folks, move along.  If Freidman hadn’t died right before the crisis, this event likely would have killed him.

The Nobel laureate economist Robert Lucas has argued that the crisis was not predicted because economic theory predicts that such events cannot be predicted.

Now Mr. Davies – Robert Lucas has served you a real softball – you ought to be able to hit this one out of the park (wait, he is from London, maybe he won’t understand my colloquialism).   There had to be some school that predicted these events….

And there is disturbing evidence that news of the crisis has not yet reached some economics departments. Stephen King, Group Chief Economist of HSBC, notes that when he asks recent university graduates (and HSBC recruits a large number of them) how much time they spent in lectures and seminars on the financial crisis, “most admitted that the subject had not even been raised.”

Of course it hasn’t been raised.  The professors would then have to deal with questions that they are unable to answer – or if they answer them they will openly admit that much of the work of their profession has been a complete and utter failure, work designed only to provide cover for the politically connected.

Now, Mr. Davies could really bring this one home.  Let’s see if he can figure it out:

We should not focus attention exclusively on economists, however. Arguably the elements of the conventional intellectual toolkit found most wanting are the capital asset pricing model and its close cousin, the efficient-market hypothesis. Yet their protagonists see no problems to address.

What!?  Blame the other guy?  That’s it?  Wait, Mr. Davies has an answer:

Finding a new and stable relationship between the financial authorities and private firms will depend crucially on a reworking of our intellectual models.

Better regulation.  That’s it.  it all comes down to finding stable relationships via financial authorities.  Really.

Davies recognizes that economic models are restrictive, and that economic agents won’t always act as models suggest.  Let’s see, what school-that-shall-not-be-named has made these points for over one hundred years?

He takes unchallenged the notion that such events weren’t predicted because they could not be predicted.  But they were predicted – both in theory (by every economist of the school-that-shall-not-be-named) and in fact (look up any of the dozens of videos by Ron Paul or Peter Schiff, just for two non-professorial practitioners of this school-that-shall-not-be-named).

Now, what is the missing word, the one that Davies defined so well yet couldn’t name?  He was so warm – on fire- yet couldn’t open his eyes.

Davies does everything but dance on the head of Mises, yet he cannot say the word. 

Let me help.  Austrian. 

Where are the Austrians – you know, the guys who said this would happen?  Busts follow the boom, manipulation of interest rates causing distortions, all of that kind of stuff?

Where is the reference to Hayek’s "Pretense of Knowledge" – the lecture he gave describing exactly this shortcoming of macro…more than 35 years ago.  Like Mr. Davies, Hayek even taught at the London School of Economics.  Davies didn’t have to look to climate change scientists for answers – he just had to check his own school’s recent history.

Sadly for Mr. Davies, the genie is out of the bottle.  All that commentaries such as this demonstrate is the hollowness of the economic profession.

Another Combatant Enters the Keiser – Woods Arena

John Aziz has thrown his hat into the ring of the recent spat prompted by Max Keiser’s stepping on the work of Ludwig von Mises.  In his contribution, Aziz focuses on the Austrian’s lack of using empirical data to test and confirm theory, and he disagrees with this approach.  This to me is reasonably well settled by Hayek’s lecture delivered on the occasion of his being awarded the Nobel Prize, and this issue is not the one I will address here.

Aziz uses as his main example of demonstrating this shortcoming is the fact that many Austrians predicted rapid and growing inflation in the aftermath of the Fed’s interventions, beginning especially in 2008, and yet this mass (or hyper) inflation has not yet occurred, and in fact inflation (as measured in prices) has stayed relatively benign:

…these predictive failures were symptomatic of deduction-oriented reasoning; Miseseans who forewarned of imminent hyperinflation over-focused on their deduction that a tripling of the monetary base would produce huge inflation, while ignoring the empirical reality of Japan, where a huge post-housing-bubble expansion of the monetary base produced no such huge inflation.

It is true, as Aziz points out – there were several prominent (and not so prominent) Austrians making this prediction – hyper-inflation is just around the corner.  This is certainly not true of all of them – one example would be Dr. North.  This critique of Aziz falls short – as some Austrians rightly recognized that inflation was not coming absent bank lending the fault cannot be in Austrians as a group or as a school.

The reason the Fed money printing has not resulted in inflation as some Austrians have warned has nothing to do with not looking at “the empirical reality of Japan”; instead, it has to do with not considering the reality of the banks holding this increased base money as excess reserves – the money created by the Fed has stayed with the Fed and has not been lent out by the banks.  The significant monetary inflation actions taken by the Fed have certainly increased the supply of money; however the demand for money has fallen as well.  Therefor the impact of prices as measured in dollars has stayed reasonably calm (this, of course, takes the government numbers as is – an assumption that many would consider not valid).

Many Austrians, Dr. North included, have regularly pointed this out.  This “miss” by certain Austrians has nothing to do with ignoring empirical reality and everything to do with ignoring a factor in the deductive reasoning.  The critique of Aziz misses the mark on this count as well – there is nothing in this “miss” that suggests a fault of Austrian Economics, but instead a fault of a complete application of factors in the analysis.

There is no shame in this – Human Action implies that we are, after all, only…human.